HealthTech M&A Earn Outs: Key Trends, Structures and Market Dynamics in 2025

In healthtech M&A in 2025, earn-outs are increasingly common and are being used to bridge valuation gaps between buyers and sellers, mitigate risk, and align incentives. The use of these structures is particularly prevalent for high-growth, early-stage companies and those with unproven or developing technologies, such as AI-driven platforms and digital therapeutics. 

Key Trends and Structures 🤝

Risk-Sharing Mechanism: Earn-outs are a way for buyers to manage the risk of overpaying for a company with unproven technology or an uncertain future revenue stream. They allow the buyer to pay a lower upfront price and a contingent, future payment if the business hits agreed-upon performance metrics.

Contingent on Performance: Payments are tied to specific, measurable milestones. These milestones can be financial, like achieving a certain revenue or adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), or non-financial, such as receiving regulatory approval (e.g., FDA clearance), launching a new product, or hitting specific customer acquisition targets.

Typical Metrics: While revenue and adjusted EBITDA are standard, healthtech deals often incorporate milestone-driven metrics due to the nature of the industry. This is particularly true for biopharma and diagnostics companies, where a deal might be structured with an initial payment and an earn-out tied to a clinical trial's success, regulatory approval, or a product's commercial launch.

Earn-out Period and Percentage: Earn-out periods typically range from one to three years to allow sufficient time for the acquired company to achieve the agreed-upon milestones. The contingent portion of the total deal value can vary widely, but for a seller's business that is already generating revenue, the earn-out may constitute 10-20% of the total purchase price.

Market Dynamics in 2025 📈

The healthtech M&A market in 2025 is driven by several factors, which influence the use and structure of earn-outs:

AI Integration: Companies with proprietary AI algorithms and scalable platforms are commanding higher valuations, often seeing multiples of 6-8x revenue, above the sector average of 4-6x. Earn-outs are used to justify these premiums by tying a portion of the valuation to the successful commercialization and integration of the AI technology.

Regulatory Evolution: As regulatory bodies like the FDA refine their frameworks for digital health tools, clear regulatory pathways boost buyer confidence. However, for companies still navigating this uncertainty, earn-outs are a crucial tool to manage risk, with payments contingent on achieving regulatory milestones.

Shift to Value-Based Care: Buyers are increasingly interested in healthtech that delivers measurable cost savings and improved patient outcomes. Companies with platforms enabling this shift (e.g., remote monitoring, population health analytics) attract a premium, and earn-outs are used to ensure the technology delivers on its promised value.

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